Earlier this month, The Wall Street Journal had an interesting piece on the challenges — and opportunities — facing income investors. Dividend payouts have dropped dramatically since the market made its big declines last year, with second-quarter S&P 500 dividends coming in $14.3 billion lower than they were a year ago — the largest drop in more than 40 years. June dividends alone for the index were down $6.6 billion, the largest drop on record, the Journal’s Tom Lauricella reports.
But there’s another side of the coin: “Dividends are down,” S&P’s Howard Silverblatt told the Journal, “but the market is down more.” And that means that yields are up, with the S&P yield almost 2.5% this month, versus less than 2% two years ago. And certain sectors and styles are offering bigger payouts — the Vanguard Utilities ETF has been yielding in the 4.5% range, for example, while the iShares Dow Jones Select Dividend Index fund has been in the 5.5% range. Blended bond/stock funds and pure bond funds are also offering some nice yields, Lauricella notes, as are funds investing in mortgage-backed securities (those focusing on mortgages backed by the government may have particular appeal).
Quite a few individual stocks are offering even bigger yields. But, as Morningstar Director of Personal Finance Christine Benz told the Journal, blindly jumping into high-yielding plays is dangerous. Don’t buy a high-yielding investment if it doesn’t fit your underlying strategy, she says: “It’s a mistake to just gun for income no matter what.”
I think Benz is right on with that warning. With that in mind, I scanned the market today for some of the top-yielding stocks that also get approval from at least two of my Guru Strategy computer models — each of which is based on the approach of a different investment great. To pass two of my strategies, a stock has to be quite fundamentally sound. For these stocks, the combination of strong fundamentals and big dividend yields thus makes for some intriguing possibilities:
Stocks with Multi-Guru-Strategy Approval, 5%+ Yield
Chasing yield will only lead to trouble. Look at what happened to Bank of America and Citigroup investors (I owned both of them – same mistake). I would really argue the AT&T inclusion in this list – fundamentals or not you cannot argue with poor customer service that is known the world over. Someone in Berlin, Germany asked me why AT&T was so bad in the U.S.!!!
As a matter of fact BCS has already suspended dividends for the 2nd half of 2008 and for the whole 2009.
I second The Dividend Guy on AT&T (T), which is not a utility, and has a pretty high payout ratio. The telecom business requires high capex and T and VZ have so far gained customers from Sprint. Once Sprint turns around, T and VZ would suffer.
Forget about Citigroup and Bank of America–for financial the Canadian Banks are the place to be. During the recent turmoil they have proven to be the strongest. A fact which has been noted by the IMF and the G7.
Strong underpinnings and good consistent dividend payers. They can be bought on the NYSE as well as the Toronto exchange.